The Dismal Optimist Returns


After an absence of almost a year, I have decided to resume publishing The Dismal Optimist . During that period I took the time to get more informed about what was going on in the global technology sector. And to pass the time (I don’t play golf), I wrote a novel about Southeast Asia called Coco’s Gambit . The book takes place in Singapore and Myanmar and is a thriller about a tough young woman, a hedge fund manager and a naughty painting. It’s available on Amazon.

In looking out at the world scene, I see a distressing number of negative macro/political phenomena to worry about. For example, the excesses of central bank quantitative easing and negative interest rates, the imbalanced budget situation of so many Western governments, the coming birth dearth in these same nations, the ever volatile Middle East and accompanying global terrorism, the danger of a major decline of the Chinese currency, the tensions in the South China Sea, and the bizarre and scary political situation in the United States.

I will defer a discussion of these subjects to later issues. I don’t have ready answers or solutions for most of them anyway.

Technology, Human Evolution and Investing

Today I would like to discuss something which is inevitable and one with substantial investment implications. That is the imminence of a coming major discrete acceleration in human evolution. This discrete acceleration has two competing/complementary parts, i.e. the ascendance of artificial intelligence (AI) and the biotech revolution.

Many will be frightened by this, especially by AI. They’ll have to get over it. This acceleration is inevitable and is no more preventable than was the evolution of modern homo sapiens. Except it will not take millions of years as in the past. It’s right in front of us and the process has already begun. It might only take thirty years. For sure it will take no more than one hundred. And it will not be stopped by its leftish Luddite opponents or all the possible macro economic/political disasters (short of a nuclear war.) They may be able to slow things down but not by much.

The bottom line for this blog? If an acceleration of human evolution is imminent and inevitable, relax and invest in it. Get in on the evolutionary process.

The driving force for evolution in the past was Darwinian natural selection. the It was something that seemed to just happen, without conscious human direction. But this time, whether they realize it or not, humans are directing their own evolution. The driving force is the global marketplace for goods, services and capital. The actors are the global corporations, backed up by the capital markets, the universities, in the case of biotech the non-profits and governments. They are responding to an ever stronger global demand to improve human lives although, in the case of one major source of demand, the military, improving human lives means saving home country lives at the expense of enemy lives.

Ultimately, the primary motivator is money. Greed is the major incentive for the next phase of human evolution. Companies are investing in AI not to contribute to evolution but to lower their costs and improve their bottom line. Startups and big pharma alike are pushing forward with research in such things as synthetic biology and gene-based medicines with visions of huge profits dancing in their heads. From an evolutionary standpoint, greed is good.

The World According to Ray Kurzweil

The leading guru for what has been called the techno-optimist view of the coming jump in human evolution is Ray Kurzweil, who now interestingly works at Google ( presumably doing no evil.) In his various books, Kurzweil has emphasized two very important concepts. The first is the Singularity. According to Kurzweil the Singularity is an era in which our intelligence will become increasingly nonbiological and trillions of times more powerful than it is today. It will bring the dawning of a new civilization that will enable humans to transcend our biological limitations, live much longer and amplify our creativity. So what’s there not to like?

According to Kurzweil this golden age will materialize about 2045. Simplifying a little, in the Singularity two possible types of entities will emerge. Cyborg humans who incorporate non-biological artificial intelligence as well as biological advances into their bodies and pure disembodied AI. These will be homo sapiens evolutionary successors.

Kurzweil’s second important concept is the law of accelerating returns. Under this law, technology is accelerating at an accelerating rate. Most of human history technological the progress appears to have occurred at a slow, linear pace. Not so for the future. According to Kurzweil, investors should take this into account when projecting earnings for tech companies. Their estimates if based on linear thinking will be too low. Kurzweil sees substantial gains in productivity coming from accelerating technological progress.

Not everyone agrees with this optimistic scenario. In a recent book entitled The Rise and Fall of American Growth, Professor Robert Gordon sees a slowdown in recent years in US productivity growth as measured by Total Factor Productivity (TFP). On this issue, one automatically gets lost in the thicket of how the statistics are computed. Kurzweil would argue that the traditional measures understate the gains from knowledge-based technological progress. Obviously if Kurzweil is right this is good news for the stock market and productivity.

The law of accelerating returns is an unproven economic concept that is the product of Kurzweil’s insights. I’m betting Kurzweil is right enough.

The Problems with AI

There are two major potential problems with AI. The first is that our superior AI children might do their ordinary homo sapiens parents harm. Some heavyweight observers have expressed some unease with AI including Bill Joy, Elon Musk, Bill Gates and Stephen Hawking . And of course there is always the Unabomber Ted Kaczynski whose infamous Manifesto argued against all technological progress. We can argue about this all day long. But I think there is a good case for the optimists that AI will be a huge benefit. Of course nobody really can be sure how our post –homo sapiens successors will treat us. Possibly they will be us – morphed into the new species. Neanderthal and Denisovan genes have survived in modern humans. They didn’t go totally extinct.

The second is that AI will replace human jobs in the coming years and put millions out of work. I think this is a real problem. Yes the global knowledge economy is desperate to fill jobs and AI will create new jobs. But millions of people will not be qualified for these jobs and will be reduced to taking jobs which under global free market conditions will pay wages which are unacceptably low by the societal standards of wealthy nations. As I argued in my Investing in the Age of Sovereign Defaults, I predict that these people will rely on the political process to get their “fair share” of the economic pie. Actually this is already happening. Higher minimum wage laws, higher taxes, opposition to global corporations and world trade, it’s all here. This problem will be exacerbated in countries like the United States where those at the lower, less skilled rungs of society might be of a different race or ethnicity than the well paid knowledge workers. There will be constant stress between the investor and knowledge worker classes and the left-out sectors of society.

The Problems With the Biotech Revolution

As I see it, there are no problems, only opportunities to improve the human condition. Fantastic though high-risk investment opportunities. Defeat diseases like cancer, eliminate inherited conditions like cystic fibrosis, and yes improve the human species via germ and somatic cell therapies. It’s been a long, slow climb in biotech starting with Abbot Gregor Mendel’s experiments with peas in the nineteenth century, to Watson and Crick’s discovery of the double helix in the 1950s to the Human Genome Project in 2000. And so many others too numerous to mention. Biotech has been a slow, difficult road that has required non-profit and government boosts. But thanks to computer technology and the hard work of so many past giants, a brave new world lies within grasp.

The biggest bombshell is a current phenomenon. The general public may not be aware of this but a new technology has come along called CRISPR/Cas9 (CRISPR stands for Clustered Regularly-Interspaced Short Palindromic Repeats) which may be the greatest scientific achievement thus far in the young twenty-first century and which dwarfs in importance the Human Genome Project of the year 2000. CRISPR/Cas9 allows the deletion of unwanted genes and their replacement by new genes when desired. CRISPR/Cas9 will only get better. Designer babies are coming, along with designer plants, designer fish and designer just about every living thing.

Unlike AI which is progressing in an abstract world the public cannot directly see (as yet), the biotech revolution has gotten far more attention. The public doesn’t worry about Google’s deep learning search algorithms but Monsanto with its genetically modified seeds is regarded by recreational worriers and the Luddite left as evil personified. It doesn’t matter that countless scientific studies have found no harm with genetically modified foods or that Americans have been eating the stuff without any problems for years. The US in particular is filled with opponents of biotechnology. Self-appointed bioethicists lament that scientist have no right to be “playing God” with germ cell alterations. But as the great James Watson has said, “If we don’t play God, who will?”

But the biotech revolution can’t be stopped. The same technology that produces extra large salmon is producing drugs against cancer. Nobody opposes cancer research, so the technology’s development in that niche will go forward. The rising biotech river will just go around the obstacles placed in its path. If the technology is restricted in the US, it will be developed somewhere else. It is already being employed in new ways in China. China has a number of genomics facilities including the BGI, located in Shenzhen, which is a world center of genomic research, some of it rumored not so politically correct by US standards. As Case reflected in William Gibson’s classic novel Neuromancer, “burgeoning technologies require outlaw zones.”

Reviewing Things from the Investor Perspective

I am an economist and investment strategist. My goal is to make Money by investing. Global corporations and global capital markets are not eleemosynary institutions (just ask Bernie Sanders). When they improve the lives of everyone, for example, by introducing robots to help seniors or a new, successful anti-cancer drug, they make money. Lot’s of it. And so do their investors. So, as argued above, it is money that today is driving force behind evolution.

I approach this from the perspective of Adam Smith and Milton Friedman. In a free market if you make money you are doing good. That’s enough.

The Dismal Optimist Returns